NACE Code (NACE)

Definition

NACE Code (Nomenclature of Economic Activities) is the European Union's industry classification system used to categorize businesses by their primary economic activity. In transfer pricing benchmarking, NACE codes are the primary filter for identifying companies in the same or similar industries as the tested party. The current version (NACE Rev. 2) uses a hierarchical structure from broad sectors (1-digit) to specific activities (4-digit).

NACE codes are the standard industry classification in European databases like Orbis and Amadeus. The equivalent US system is SIC (Standard Industrial Classification) or NAICS (North American Industry Classification System).

OECD/Regulatory Reference

The OECD Transfer Pricing Guidelines (2022) identify industry characteristics as a key comparability factor in Chapter I. The Guidelines note that the industry in which the tested party and comparables operate may affect the comparison.

While the Guidelines don't mandate specific classification systems, they require that industry comparability be evaluated. NACE codes provide a standardized, objective framework for this analysis.

The Guidelines (in Chapter III) also note that database searches may appropriately start with a preliminary search using relatively wide-ranging criteria—industry codes like NACE are the typical starting point for these searches.

In Practice

NACE Code Structure (Rev. 2):

Using NACE Codes in Benchmarking:

Example

Tested Party: Contract manufacturer of automotive components.

NACE Code Selection:

Search Strategy:

Result: Starting with the primary NACE code ensures functional relevance. Expanding to related codes increases sample size while maintaining industry comparability.

NACE vs. SIC vs. NAICS

Cross-referencing: When searching global databases, you may need to use multiple classification systems. Eurostat provides official NACE-to-SIC correspondence tables for mapping between systems.

Common NACE Codes in Transfer Pricing

Related Terms

• Comparable Companies — Entities identified through NACE code searches
• Comparability Analysis — Process using industry filters
• Manual Screening — Verification that NACE codes match actual activities

Further Reading

• NACE Code Selector Tool — Interactive NACE code finder
• Benchmarking Study Guide — Complete methodology

Frequently Asked Questions

How do I find the right NACE code for my tested party?

Start with the tested party's primary economic activity. Use the official NACE Rev. 2 structure from Eurostat or our NACE Code Selector. Match at the most specific 4-digit level. If unsure between codes, consider whether your tested party's functions align more closely with one activity over another. Document your selection rationale.

Can I use multiple NACE codes in a single search?

Yes, this is common practice. If your tested party's activities span related codes (e.g., distribution and light assembly), include relevant codes in your search. You can also expand from 4-digit to 3-digit codes to capture a broader set. Document which codes you used and why each is relevant to the tested party's functions.

What if my tested party's NACE code has few companies?

Options: (1) Expand to 3-digit level for broader industry match, (2) Include related NACE codes with similar functions, (3) Expand geography to increase sample size, (4) Accept a smaller comparable set if quality is high. Document why expansion was necessary and how comparability is maintained.

Should I use the tested party's registered NACE code or actual activity?

Use actual activity. Companies' registered NACE codes may be outdated or reflect administrative choices. If a company registered as "wholesale distribution" (46.XX) actually manufactures products, search manufacturing codes (25-30). The goal is functional comparability, not matching registration codes.

How do NACE codes relate to SIC codes for US searches?

NACE and SIC are different classification systems with approximate correspondence. Eurostat publishes official mapping tables. When using US databases (Compustat), you'll need SIC or NAICS codes. The mapping isn't always exact—verify that SIC code descriptions match your tested party's functions, not just the NACE equivalent.

Should I include holding companies (NACE 64.20)?

Generally no. Holding companies (NACE 64.20) exist to hold investments and collect dividends—they don't perform operational functions comparable to distributors, manufacturers, or service providers. Including holding companies would introduce non-comparable entities. Explicitly exclude NACE 64.XX in most benchmarking searches.

How specific should my NACE code selection be?

Balance specificity and sample size. Four-digit codes provide the closest functional match but may yield few results. Three-digit codes are broader but risk including less comparable entities. Start at 4-digit; expand only if necessary. For common industries (wholesale distribution, manufacturing), 4-digit codes typically yield sufficient results.